WASHINGTON, October 17 (RIA Novosti) — Low crude oil prices can become the engine that re-stokes economic growth in the world, Director of Energy Security Initiative at the Brookings Institution, Charles K. Ebinger told RIA Novosti.
"I think we'll easily see [crude oil] prices go to $70 [per barrel], and I personally think they will go to $60," Ebinger said on Thursday. Ebinger, however, believes that lower barrel prices will not stay that way for long. He said that the world will see crude oil prices go back up to $100 per barrel, adding that the prices should eventually rebound to around $80 per barrel.
Slowing global economic growth is a contributing factor to the decline in crude oil prices, said Ebinger, but there are some other possibilities that could be upsetting the prices like rising global oil production in North America or oil that was out of the market due to political conflicts in various regions of the world.
"The fact the Saudis back in August cut production by 400,000 barrels per day to defend market share was another big issue," remarked Ebinger.
Ebinger noted that production of natural gas liquids (NGL) is surging and is being underestimated. Organization of the Petroleum Exporting Countries (OPEC) does not include NGLs in their quotas making it difficult to quantify. Some products which used to be made using petroleum are now being made of natural gas or NGLs.
"There's been a lot of anecdotal evidence that hedge fund managers who had thought that oil was going to continue to go up because of all the political conflicts around the world had gone long on crude oil and when the market turned, they dumped all of their positions into the market," stated Ebinger. "Although hard to prove, the estimate is as much as 200 million barrels per day. Even if the exact amount is lower, hedge fund managers have clearly been liquidating," he explained.
"When you put all of those things together, we're in a free fall," said Ebinger.
According to Ebinger, the existing shale oil production might see some backlash from lower crude oil prices if they drop below $60 to $50 per barrel. Shale oil production in the Permian Basin in West Texas is less affected by lowering crude oil prices than Bakken shale oil production in North Dakota and Montana, because Bakken tends to have more volatile production levels whereas Permian has more stable levels.
Ebinger said, "The smaller boys get hurt in the $60 to $70 [per barrel] range in terms of drilling new wells, but I don't buy the argument that all of the existing unconventionals [alternative oil sources] will all of a sudden shut down."
"The Iranians are blaming the Saudis. The Russians are saying it's a Saudi-US plot against Russia – all kinds of great conspiracy theories, but I don't think any of them really have much merit. I think we're in a classic down market," Ebinger concluded.
Crude oil prices have been in decline since mid-June and have lost over 28 percent of their value since that time. Oil prices started dropping on October 10 after OPEC published its October report which indicates increases in oil production in OPEC-member countries.